The Department of Labor (DOL) has provided employers with some much needed clarity on the perks that are to be included in workers’ “regular rate of pay” in the final release of a new rule set to take effect Jan. 15, 2020.

Under the Fair Labor Standards Act (FLSA), employers must pay workers at least the minimum wage and overtime pay, unless the worker is exempt. The “regular rate of pay” is the amount of compensation on which the overtime pay rate is calculated. Overtime is paid at one and one-half times an employee’s “regular rate of pay.” The rate includes an employee’s hourly rate plus the value of other types of compensation such as bonuses, if applicable.

It is important to note that FLSA does not require employers to pay employees on a weekly basis, however calculating an employee’s regular rate and overtime pay must be done on an individual workweek basis.

Given this is the first time in decades the DOL has updated the FLSA definition of “regular rate of pay,” it has caused a lot of confusion for employers.

Clarifications of Changes

The newly adopted regulations confirm employers may exclude the following perks from the regular-rate calculation:

• Parking benefits, wellness programs, onsite specialist treatments, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits and adoption assistance.
• Reimbursement items such as cellphone plans, credentialing exam fees, organization membership dues and certain travel expenses.
• Unused paid leave, including paid sick leave and paid time off.
• Certain sign-on and longevity bonuses.
• Complimentary office coffee and snacks.
• Discretionary bonuses.
• Certain penalties employers must pay under state and local scheduling laws.
• Contributions to benefit plans for accidents, unemployment, legal services and other events that could cause future financial hardship or expense.

Taking Actions

Now is a good time for employers to consider the perks they offer to employees and how it may impact the “regular rate of pay.” Additionally, it is important to understand applicable state laws that may have stricter rules related to overtime pay.

Contact us to see how DM Payroll Solutions can help you remain compliant in paying your employees’ overtime.